Libor Lies Revealed in Rigging of $300 Trillion Benchmark

White was away that day, Danziger input the rate himself. There were no rules at RBS and other banks prohibiting derivatives traders, who stood to benefit from where Libor was set, from submitting the rate -- a flaw exploited by some traders to boost their bonuses.
The next morning, RBS said it would have to pay 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its submission that day, inflating that day’s rate by one-fifth of a basis point, or 0.002 percent. On a $50 billion portfolio of interest-rate swaps, RBS could have gained as much as $250,000.

Events like those that took place on RBS’s trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old pub, are at the heart of what is emerging as the biggest and longest-running scandal in banking history. Even in an era of financial deception -- of firms peddling bad mortgages, hedge-fund managers trading on inside information and banks laundering money for drug cartels and terrorists -- the manipulation of Libor stands out for its breadth and audacity.

Details are only now revealing just how far-reaching the scam was.

“Pretty much anything you could do to increase the revenue of your organization appeared legitimate,” says Martin Taylor, chief executive officer of London-based Barclays Plc from 1994 to 1998. “Here was the market doing something blatantly dishonest. I never imagined that people in the financial markets were saints, but you expect some moral standards.”

3. But the banksters said they did nothing wrong.

Look at this guy, making a case to sweep LIBOR under the rug:

The LIBOR Scandal: Not that Big a Deal?

Paul Solman
The Business Desk, PBS.org

One of the biggest business scandals of 2012 was the the manipulation of LIBOR, the London Interbank Offering Rate, on which so many other interest rates depend. LIBOR is determined by the banks themselves and, it turns out, was rigged -- for years. Traders were in cahoots with "submitters" from the banks responsible for "reporting" the rates banks were offering to charge one another in the London market -- the "interbank offering rate." But the submitters were incentivized -- and only too happy, it seems -- to accommodate the traders by customizing their submissions for the profit of all.

The Economist published some particularly juicy emails from the ongoing investigation:

"One banker at UBS, in asking a broker to help manipulate submissions, promised ample recompense:

'I will f*ing do one humongous deal with you ... Like a 50,000 buck deal, whatever. I need you to keep it as low as possible ... if you do that ... I'll pay you, you know, 50,000 dollars, 100,000 dollars ... whatever you want ... I'm a man of my word.'

SNIP...

But Doug Dachille, our man in the pits (figuratively speaking), thinks it's easy to make something of the LIBOR scandal that it is not: a conspiracy that screwed the global economy. Doug was the head of proprietary trading at JP Morgan until the merger with Chase, and then co-head thereafter. He's been featured on this page before: here, here and here.

Here is his take on LIBOR:

"While everyone focuses on the market manipulation of LIBOR, for which it is unclear there was any material impact on the rate setting itself, or whether any institution was able to specifically profit, no one is focusing on the real market manipulation that is done knowingly to boost profits and enhance compensation -- mis-marking of trading and accrual positions...."

Doug went on to explain the issue of mis-marking -- a little wonky for this page, though if there's an upswell of requests, we'll be happy to publish the rest, with Doug's permission.

CONTINUED (A must read for those who want to document the problem with thinking one class is immune from criminality)...